from the blowback dept

Well, well. For the past few months I've been meaning to write about Disney's silly lawsuit against Redbox, but other stuff kept coming up, and now a judge has ruled against Disney and said that Disney appears to be engaged in copyright misuse. This is in a case that Disney brought -- and it appears to be backfiring badly. Redbox, as you probably know, has kiosks where you can rent DVDs relatively cheaply. It's managed to stay alive despite the traditional DVD rental business disappearing most everywhere else. About a decade ago, Hollywood fought vigorously against Redbox, but the company survived (though being taken over by a private equity firm in 2016), relying heavily on first sale rights, enabling it to legally purchase DVDs and then rent them out.

Back in December, however, Disney sued Redbox over taking its business to the next level and including download codes that could be purchased at a Redbox kiosk. Though it took them basically forever, Hollywood studios have finally realized that offering online access with the purchase of movies is a good idea, but they only want the end consumer who is buying a DVD to get access to them. So, Redbox would buy the Disney "Combo Packs" that offered the DVD and a download code, and the would offer the paper codes in kiosks to let renters watch the movie online. They weren't just copying the code and letting anyone use it -- it was still a one-to-one limitation with the purchase in that they would buy the DVD with a paper code on it, and then stuff that paper code into their kiosk delivery pods. Disney argued that this was contributory copyright infringement, even though the code pointed to a legitimate/authorized version of the movie and was legitimately purchased.

Redbox hit back by arguing that the First Sale doctrine protected it (as it did with the physical rentals) and that it is free to use the codes in this manner as the legal purchaser. Disney's response to that was that First Sale does not apply to the download code because it's not the copyright-covered work.

But Redbox also hit back with a separate punch against Disney, arguing that it was engaged in copyright misuse, a concept we've discussed in the past, but that rarely shows up in cases these days (even though we've argued it should be used more often). The basic argument was that Disney was over-claiming what copyright allowed it to exclude in order to stamp out competition. And, (somewhat surprisingly), in the process of denying Disney's demand for a preliminary injunction, the court agrees that Disney is engaged in copyright misuse because it is using its copyright in the movies to restrict what happens to purchases.

Combo Pack purchasers cannot access digital
movie content, for which they have already paid, without exceeding
the scope of the license agreement unless they forego their
statutorily-guaranteed right to distribute their physical copies of
that same movie as they see fit. This improper leveraging of
Disney’s copyright in the digital content to restrict secondary
transfers of physical copies directly implicates and conflicts with
public policy enshrined in the Copyright Act, and constitutes
copyright misuse.

Because of this, the court finds that Disney has little chance of prevailing on its contributory copyright infringement claims and denies the injunction request.

The court then notes that it doesn't even need to get into the First Sale issues, but then suggests Redbox would have difficulty winning on a pure first sale argument, mainly because of the ReDigi decision that said you can't sell "used" MP3s. And then concludes that First Sale doesn't really come into play since it's the code that's at issue, rather than the copyright-covered content:

Notwithstanding ReDigi, the plain language of the statutes,
and the important policy considerations described by the Copyright
Office, Redbox urges this court to conclude that Disney’s sale of
a download code is indistinguishable from the sale of a tangible,
physical, particular copy of a copyrighted work that has simply
not yet been delivered. Even assuming that the transfer is a sale
and not a license, and putting aside what Disney’s representations
on the box may suggest about whether or not a “copy” is being
transferred, this court cannot agree that a “particular material
object” can be said to exist, let alone be transferred, prior to
the time that a download code is redeemed and the copyrighted work
is fixed onto the downloader’s physical hard drive. Instead,
Disney appears to have sold something akin to an option to create
a physical copy at some point in the future. Because no
particular, fixed copy of a copyrighted work yet existed at the
time Redbox purchased, or sold, a digital download code, the first
sale doctrine is inapplicable to this case.

There's a separate issue around whether or not Redbox's actions constituted a "breach of contract," and again the court is unimpressed. The key question is whether or not the text that Disney prints on its box about how "codes are not for sale or transfer" represents a contract. The court easily concludes that it does not:

The phrase “Codes are not for sale or transfer” cannot
constitute a shrink wrap contract because, like the box at issue in
Norcia, Disney’s Combo Pack box makes no suggestion that opening
the box constitutes acceptance of any further license restrictions.... Although Disney seeks to
analogize its Combo Pack packaging and language to the packaging
and terms in Lexmark, the comparison is inapt. The thorough boxtop
license language in Lexmark not only provided consumers with
specific notice of the existence of a license and explicitly stated that opening the package would constitute acceptance, but also set
forth the full terms of the agreement, including the nature of the
consideration provided, and described a post-purchase mechanism for
rejecting the license. Here, in contrast, Disney relies solely
upon the phrase “Codes are not for sale or transfer” to carry all
of that weight. Unlike the box-top language in Lexmark, Disney’s
phrase does not identify the existence of a license offer in the
first instance, let alone identify the nature of any consideration,
specify any means of acceptance, or indicate that the consumer’s
decision to open the box will constitute assent. In the absence of
any such indications that an offer was being made, Redbox’s silence
cannot reasonably be interpreted as assent to a restrictive
license.

Of course, this almost certainly means that Disney is quickly reprinting the packaging on all its Combo Pack DVDs to make this language more legalistic to match the Lexmark standard.

Still, the court also notes that Disney makes other claims on the box that are clearly not true, which further undermine the claim that random sentences on the box represent a contract:

Indeed, the presence of other, similarly assertive but
unquestionably non-binding language on the Combo Pack boxes casts
further doubt upon the argument that the phrase “Not For Sale or
Transfer” communicates the terms or existence of a valid offer.
The packaging also states, for example, that “This product . . .
cannot be resold or rented individually.”... This prescription is demonstrably false, at least insofar as
it pertains to the Blu-ray disc and DVD portions of the Combo
Pack.8 The Copyright Act explicitly provides that the owner of a
particular copy “is entitled, without the authority of the
copyright owner, to sell or otherwise dispose of the possession of
that copy.” ... Thus, the clearly unenforceable “cannot be resold
individually” language conveys nothing so much as Disney’s
preference about consumers’ future behavior, rather than the
existence of a binding agreement. At this stage, it appears that
the accompanying “Not For Sale or Transfer” language plays a
similar role.

While it's a bit disappointing to see the court buy into the ReDigi reasoning on First Sale, it's good to see it not buy the language on the box representing a contract and to call out the company for copyright misuse in leveraging copyrights to stifle other lawful activity. This case is likely far from over, though, so we'll see how things progress.

from the how-not-to-do-it dept

Almost exactly a year ago, we wrote about a rather encouraging development in filmmaking, highlighting the story of Warner Bros. film studio working out a deal with the producer and actors of the popular Veronica Mars TV show, that if they could prove demand for a film via Kickstarter, Warner Bros. would fund the rest of the film. Basically, Warner Bros. had been unconvinced that there was enough demand for a movie to finance it upfront. But, with tools like Kickstarter today, you can prove demand upfront, taking away a big part of the risk. And that's exactly what happened, as the project raised over the $2 million target very quickly, and eventually brought in $5.7 million. Part of what was interesting about this was it showed how movie studios could actually embrace crowdfunding as well, creating some interesting hybrid models that don't always involve some studio head deciding what people will and won't like.

The movie came out last week to very good reviews... but leave it to Warner Bros. to totally muck it up, screw over the goodwill from all those backers and scare people off from such future collaborations. That's because one of the popular tiers promised supporters that they would get a digital download of the movie within days of it opening. But, of course, this is a major Hollywood studio, and due to their irrational fear of (oh noes!) "piracy" they had to lock things down completely. That means that backers were shunted off to a crappy and inconvenient service owned by Warner Bros called Flixster, which very few people use, and then forced to use Hollywood's super hyped up but dreadful DRM known as UltraViolet.

“My first and last time using Flixster or Ultraviolet,” Jennifer Gottried wrote. “Not happy about what a pain the digital “download” is, but loved the movie!” Carolyn O'Neill said she felt “ripped off,” adding “I will not be supporting anything VMars related in the future, and may never support a similar Kickstarter project again.”

Others labeled Flixster “unreliable,” “crap,” “slow” and “punishing.” There are those who downloaded the movie without a hiccup, and those who did have been effusive in their praise. Yet the majority expressed dismay....

Reading through the comments shows an awful lot of angry folks, with lots of blame being directed at Flixster, and some people angry that the creator of Veronica Mars, Rob Thomas, let this happen. He eventually posted that while he had "hoped" that Warner Bros. would allow more options, "unfortunately, it just wasn't possible. In the end, Flixster was the best option for getting the digital movie reward out to all of you, worldwide, at the same time." There may be something to do with regional restrictions, yet in the comments, you see people claim that when they tried to get their digital copy, they were told, "Sorry, the redemption code you have entered is not valid for the territory you are currently trying to redeem from." So, it's not clear how Flixster actually solves that global issue. Multiple people in the comments note that they eventually just gave up getting the authorized version and hit up unauthorized sources instead.

Eventually, Warner Bros. announced that it would provide refunds to backers who had trouble getting the digital download, which seems like the least it could do, given the situation. But, the end result appears to have left a sour taste in a lot of peoples' mouths. So, way to go, legacy Hollywood, for taking an exciting success story of internet-empowered opportunity, and destroying it with crappy and lame proprietary platforms and restrictive DRM. Once again, you show how to screw up just about every opportunity handed to you.

from the but-of-course... dept

With the economy in so much trouble, state tax revenues are being hit hard -- so, rather than figuring out ways to spend more wisely (what a concept), they're looking for ways to boost tax revenues, and are hitting up two popular online tax targets: taxes on physical goods purchased online and taxes on digital downloads. Of course, the whole (official) purpose of a sales tax was that it was supposed to be used to pay for the infrastructure that made it possible for you to drive to the store and purchase the product (e.g., the roads...). That's not always the case for online ordering (though, some will point out that local infrastructure plays a part on the delivery side). However, it's difficult to see any justification at all (other than a blatant money grab) for a digital download sales tax. But, state officials don't even seem to be looking for any real justification. They're just saying that they need more tax revenue.

Another point raised, in the article on taxing digital downloads, is that politicians don't seem to be distinguishing between digital goods and online services. The person quoted in the article suggests that's a problem, but I'd argue that the real mistake is in thinking that there actually is a "digital good." These days, pretty much all sales of "digital goods" are nothing more than a service. So if we believe that services shouldn't be taxed, then digital goods shouldn't be taxed either. They're the same thing.